5 Ways Your Personality Affects Your Spending Habits

When you spend money, you probably don’t think twice about why you just made a purchase. You know that you needed to buy that new dress for your friend’s upcoming birthday party, but did you consider that maybe your personality had more to do with that purchase?

Identifying your financial personality type can shed light on your spending habits, the financial mistakes you’re susceptible to, and ultimately, help you handle your money better. Here are five personality traits and types that can have an effect on your spending habits.

1. Optimists

If you’re a hopeful person who’s positive about the future and believes the glass is always half full, you might call yourself an optimist. But did you know there are different types of optimists? And, not all of them have the same spending habits.

Realistic optimists tend to be more conscientiousness, and they think about what they spend and usually keep a budget. But, they’re not uptight about it. They don’t mind taking on new challenges, such as buying a home or a car, but they make their decisions based on what they think they can control. So, they generally don’t overextend themselves, said Joshua Firestone, a credit counselor with ClearPoint Credit Counseling Solutions. And perhaps most importantly: Realistic optimists recognize it’s possible to get into financial trouble.

On the contrary, idealistic optimists fail to take sensible precautions because they don’t consider risks nor do they believe anything will ever go wrong for them. They make assumptions about life, and they feel good about it because they haven’t reached a crashing point yet, said Firestone. According to him, you can identify these people because they’re racking up debt, not paying off their credit card balances, and they tend to project their raises and use that as a reason to keep spending. These people are usually comfortable living above their means as it’s slowly killing them, he added.

2. Conservatives

Perhaps you’re cautious with your money and would rather have it than spend it. If so, you’re probably a conservative spender. “It is the conservative who tends to suffer less in terms of problems with spending and debt,” said Rob Drury, executive director of the Association of Christian Financial Advisors.

For conservatives, cash is king. Their portfolios tend to be cash-heavy because they’re risk-averse and more likely to whip out greenbacks than credit cards. Why? Because they don’t like a lot of debts. Many are even slightly paranoid about credit, said Firestone.

But although conservatives tend to be less likely to suffer from credit and debt problems, they’re often so cautious that they won’t take necessary risks in saving and investing that will benefit them. “They may also find themselves miserable, hoarding money that might otherwise enable them to live a more enjoyable life,” said Drury.

3. Risk-Takers

People with a more aggressive financial personality trait are often investors and entrepreneurs. Oftentimes, they’re looking for access to major capital to fund ventures — such as flipping houses — so cash isn’t important to them. They’re risk-takers who are comfortable being cash poor because it’s credit they really want, said Firestone. And, they’re very concerned about protecting and driving up their credit scores because they know that’s the key to accessing more credit.

Like optimists, risk-takers can also be divided into two groups, said Emily Bouchard, managing partner of Wealth Legacy Group. “Those who are realistic are what we refer to as ‘warriors,'” she said. “They enjoy the process of doing background research, due-diligence, cross referencing and taking calculated risks to [receive] great returns and rewards.”

The more idealistic risk-takers, however, are often categorized as ‘fools,’ said Bouchard. They “tend to leap before looking and trust that they will always land on their feet no matter what,” she said.

Being a risk-taker isn’t always bad, though. In fact, some risk is needed to be financially successful. “You need to be able to tolerate a certain level of risk,” said Bouchard, “Risk-taking is an important quality to develop …”

4. Thinkers

A thinker will develop money-management strategies that are thought through to the smallest detail. They tend to do well financially, but all that thinking doesn’t always lead them to reach the best conclusions, said Firestone. Thinkers can get so consumed with each detail they forget the sum of all the parts.

Another problem with thinkers is they’re prone to “analysis paralysis” where they can’t make decisions because they’re fear-stricken, said Bouchard. “When someone becomes stuck in analysis paralysis, they are being impacted by a fear, such as a fear of making a mistakes, a fear of making the wrong decision, a fear of losing more than winning in the end, or a fear of uncertainty,” she said. Sometimes, that fear of uncertainty is exacerbated when you’re responsible for your family’s money or if you face scrutiny for their financial decisions.

5. Emotional Spenders

Emotional spenders tend to be feelers. “They are often conflicted about their money and can experience shame, guilt and a sense of being undeserving of the resources they have,” said Bouchard. “They tend to pick up the tab or be overly generous toward others due to their own feelings of discomfort about how much they have when they know they really aren’t any different than anyone else.”

Many of these people are also self-deniers, said Firestone. They spend lavish amounts on others that they wouldn’t dream of spending on themselves because they lack confidence and are looking for acceptance.

People who inherit money commonly become emotional spenders, said Bouchard. They’ll spend heavily on others, but their unresolved feelings also lead them to splurge on themselves. However, since each purchase only brings temporary relief, they need to keep spending to feel better. Unfortunately, emotional spenders usually end up getting heartache and bills in return.

“Emotional spending is necessary for maintaining sanity,” said Drury, “but crazy spending leads to crazy debt, resulting in the very distress the spending was intended to alleviate.”

If you find that your financial personality is causing you to overspend and spend money irrationally, it might be time to consult a professional’s help. A certified financial planner (CFP) can help you create a budget, set goals and modify your spending habits. As a starting point, visit the National Association of Personal Financial Advisors for a list of fee-only planners.

But if you think planner fees are out of our budget, consider free or cheap money-management apps and software. For example, Mint can help you manage your cash flow and budget. And if you’re really having a hard time controlling your spending habits, try the Level Money app. The free app helps you keep track of how much you’re spending every day and compare your spending every month.

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